Puerto Rico Bonds Reach Two-Month High as House Passes Tax BillMichelle Kaske, Ezra Fieser and Alexander Lopez
Puerto Rico’s newest general-obligation bonds climbed to a two-month high after the island’s House of Representatives approved a sales-tax increase to help balance the fiscal 2016 budget.
Junk-rated commonwealth debt maturing in July 2035 traded Friday at an average price of about 83.3 cents on the dollar, the highest since March 19, according to data compiled by Bloomberg. That’s up from 79.13 cents May 13, the day before Governor Alejandro Garcia Padilla and lawmakers from his party agreed on a framework for the tax boost. The debt was issued in March 2014.
The Senate may vote Monday on the bill after the lower chamber on Thursday evening approved lifting the levy to 11.5 percent from 7 percent through March, after which it would transition into a value-added tax. The Senate has enough votes to pass the bill, according to Senator Jose Nadal Power, who chairs the chamber’s Finance Committee.
Lawmakers expect the measure will increase revenue and balance a proposed $9.8 billion budget for the fiscal year beginning July 1.
The bill “will take us another step toward taking care of the budget,” Rafael “Tatito” Hernandez, who chairs the House Treasury Committee, said during Thursday’s debate.
The House had rejected a previous tax-overhaul plan from the governor last month. Lawmakers need to pass a balanced budget by June 30 and the commonwealth faces a $630 million payment to bondholders July 1.
The Government Development Bank, which lends to Puerto Rico and its municipalities, will deplete its liquidity by Sept. 30 unless the island completes a planned sale of $2.9 billion of debt backed by oil taxes, according to the commonwealth’s latest quarterly filing. The bank’s net liquidity dropped to $1.02 billion as of April 30, from $2 billion in October.
Increasing revenue would attract investors to the planned bond deal, according to the GDB. Proceeds would repay money the commonwealth’s highway authority owes the bank and help avert a partial government shutdown.
Commonwealth securities have gained for seven straight days through Thursday, the longest stretch since March, S&P Dow Jones Indices show. The island’s debt has still lost 0.8 percent this year, the worst annual start since at least 2007.
Lawmakers are trying to revive an economy that has struggled to grow since 2006. The island’s elevated jobless rate -- it’s twice the national average -- has contributed to a 7 percent decline in the population in the past decade, to about 3.5 million.
“This law will cause an even greater exodus of Puerto Ricans,” Jenniffer Gonzalez, speaker for the House minority, said during Thursday’s debate.
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